GM: UAW Contract Lifts Costs $215 Million by 2013

General Motors Co. said its new labor contract will cost the company $215 million over the next three years as it raises wages for entry-level employees and buys out its most expensive laborers.

Chief Executive Officer Dan Akerson told analysts during a conference call that the new contract keeps GM competitive with only a marginal boost to its $5 billion a year labor tab. Wage increases for entry-level workers, $5,000 signing bonuses and other benefits add up to $675 million through 2013. GM got $460 million in savings to partially offset pay increases, the company said.

Labor costs will rise 1 percent a year, which is the smallest increase in a GM contract in four decades, GM said. By keeping labor cost increases in check, GM will be able to add jobs and reopen one plant in the U.S., Akerson said.

“The new agreement presents an opportunity for more U.S. jobs and for expanding production capacity as the market allows,” Akerson said on the call. “This agreement positions the company for growth and success.”

UAW members ratified the contract with 65 percent of production workers and 63 percent of skilled-trades workers voting in favor, the union said. GM, the biggest U.S. carmaker, and the UAW agreed to the accord late on Sept. 16.

GM said it has eliminated the jobs bank, a paid-layoff clause in past contracts that required the company to give furloughed workers most of their wages. New hires, who start at $14.78 per hour, will not get a pension, GM said. Instead, they will have a defined-contribution plan such as a 401(k).

No Pension Boost

GM also did not boost the pension payments for existing retirees for the first time since 1953, said Chief Financial Officer Dan Ammann. The company held the line on wages for senior workers, whose wage rates are about double that of entry- level employees, Ammann said.

The company said it can break even with annual U.S. industrywide light-vehicle sales of 10.5 million.

“If they could get agreements like this every four years, it will help out everyone including the union,” David Whiston, an equity analyst with Chicago-based investment research firm Morningstar Inc. said in a telephone interview.

The automaker’s new profit-sharing plan for UAW workers closely resembles the formula of the previous contract and is aligned with the plan used for GM’s salaried employees, Ammann said. The union has said annual profit-sharing payments will be based on GM’s earnings in North America instead of just the U.S.

“The profit-sharing plan allows all employees to share in our success while protecting the company from a downturn,” Ammann said on the call.

Plant to Reopen

GM will reopen its former Saturn plant in Spring Hill, Tennessee, as part of an “innovative staffing and operating agreement” that allows GM to build different vehicles on several platforms, Ammann said, without providing details. The UAW has said GM will begin adding about 500 jobs at the factory next year and 610 starting in 2013.

The new GM contract covers 48,500 hourly workers and the union is attempting to use it to set a pattern in labor negotiations with Ford, where talks intensified on Sept. 26, and Fiat SpA-controlled Chrysler Group LLC. UAW President Bob King has said workers must be rewarded for the $7,000 to $30,000 in concessions they each gave since 2005 to help U.S. automakers.

“I think they will get a deal at Ford,” said Art Schwartz, a former GM labor negotiator and now president of Labor & Economics Associates in Ann Arbor, Michigan. “It will look like the GM deal but probably a little richer.”

Ford Talks

Ford is discussing adding as many as 10,000 jobs in the U.S. in its talks with the UAW, according to three people familiar with the negotiations. The job-creation discussion is part of negotiations over wages and is subject to change, said the people, who asked not to be identified revealing internal deliberations.

GM agreed to give workers as much as $9,000 in cash payments over the contract, plus increased profit-sharing payments. Ford workers may expect more because the automaker avoided the bankruptcies that befell GM and Chrysler in 2009.

The UAW surrendered the right to strike at GM and Chrysler in these talks as part of their U.S.-backed bankruptcies in 2009. Any unresolved issues would have been subject to binding arbitration. Ford’s UAW members rejected a strike ban.

Workers at Detroit-based GM, Ford and Chrysler received signing bonuses of $3,000 after they ratified 2007 labor contracts. Prior to that, such bonuses had been around $1,000. The union had sought signing bonuses of $8,000 to $10,000, four people familiar with the proposal have said.

‘Important Gains’

“The UAW and GM entered into this set of bargaining as America struggles with record levels of unemployment and an economy that shows little sign of improvement,” the UAW’s King said in a statement. “We not only stopped proposed givebacks, but we made important gains for our members in this contract.”

In addition to the signing bonus, GM agreed to pay workers $1,000 “inflation protection” payments over the next three years and $250 a year over four years if quality targets are met.

Profit-sharing payments may reach $28,000 for each union member, Morgan Stanley estimated in a Sept. 26 report. The projection was based on Morgan Stanley’s forecast of GM’s North American earnings before interest and taxes through 2014. The payments may reduce GM’s profit per vehicle to about $6,650 from $7,000, the report said.

In 2012, profit sharing will equal at least $3,500 for 2011 profits based on first-half performance, the union has said.

The automaker also agreed to invest $2.5 billion in U.S. plants over the life of the contract, the UAW said.

Buyout Packages

GM will offer buyout packages worth as much as $75,000 to its roughly 10,000 skilled-trades workers, the Detroit-based UAW said Sept. 20 in a briefing with reporters. Other employees eligible to retire can take $10,000 to stop working within two years so that GM can replace them with new hires.

GM fell 78 cents, or 3.7 percent, to $20.41 a share at 4 p.m. in New York Stock Exchange composite trading. The shares have slid 38 percent from its initial public offering price of $33 in November.

GM will save $30 an hour for every skilled-trade employee who leaves and is replaced by a lower-paid worker, Kristin Dziczek, director of the labor and industry group at the Center for Automotive Research in Ann Arbor, Michigan, has said. That adds up to $57,000 a year per worker who is replaced, she said.

About 4,000 skilled-trades employees and 11,550 production workers are eligible to retire, according to GM.

GM will save or add 6,400 jobs under the union contract, the union has estimated.

General Motors Co. said its new labor contract will cost the company $215 million over the next three years as it raises wages for entry-level employees and buys out its most expensive laborers.
Chief Executive Officer Dan Akerson told analysts during a conference call...